APPOINTMENT OF INDEPENDENT DIRECTOR OVER 75 YEARS OF AGE

[Mr. M. GOVINDARAJAN]

In 20 MICRONS LIMITED VERSUS BSE LIMITED, SECURITIES AND EXCHANGE BOARD OF INDIA, MUMBAI AND NATIONAL STOCK EXCHANGE OF INDIA LIMITED, MUMBAI  - 2023 (12) TMI 38 - SECURITIES APPELLATE TRIBUNAL, MUMBAI (‘appellant company’ for short) is a public limited company.  Its shares are listed both in National Stock Exchange and Bombay Stock Exchange.  The Board of the said company contains one Chairman-cum-Managing Director, one Managing Director, a director and four independent directors.  The company has complied with the provisions of LODR Regulations in regard to the composition of directors.  The company has complied with Regulation 17(1C) of LODR since it had consisted of more than six directors.  The second term of the two directors are to be expired.

The Nomination and Remuneration Committee of the Company recommended Mr. Swaminathan Sivaram as an additional director in the category of independent director, to the Board.  This appointment is subject to the approval of the members in general meeting in the 36^th Annual General Meeting.  Based on the recommendations of the Nomination and Remuneration Committee the Board appointed him as additional Director in the category of independent director subject to the approval of general meeting by means of special resolution.  The said Sivaram has already attained 75 years and therefore his appointment as independent director is subject to the approval of general meeting by means of a special resolution.  In the 36^th general meeting the members passed special resolution for the appointment of Sivaram as independent director.

In the meanwhile, Bombay Stock Exchange sent a communication to the Company alleging that the company has not complied with the Regulation 17(1A) and imposed a fine of Rs.1.08,560/-.  The National Stock exchange also imposed the same amount as penalty to the company for noncompliance of Regulation 17(1A).

The stock exchanges contended before Securities Appellate Tribunal (‘SAT’ for short) that the fine was imposed on account of non-compliance of Regulation 17(1A) which provides that an additional director can only be appointed only after approval is given by the members of the Company through a special resolution and that an appointment cannot be made prior to taking the approval through a special resolution from the members of the Company.

Being aggrieved against the said communications of Bombay Stock Exchange and National Stock Exchange, the company filed an appeal before the SAT.  The SAT heard the submissions of the Company and the stock exchanges.  SAT found no reason whatsoever has been given in the impugned order as to why and how the Company has violated the provisions of Regulation 17(1A) of the LODR Regulations.  The SAT held that the impugned order is not sustainable on this ground itself.

SAT considered the question that is to be analysed in this case is as to whether approval is required to be obtained from the shareholders of the company through a special resolution before a person who has attained 75 years of age.  For this purpose, SAT analysed the provisions of Section 149, Section 152(1) and Section 161 of the Companies Act.  SAT observed the following on the analysis of the above sections-

• Every Company shall have board of directors consisting of individuals as directors.
• The directors can only be appointed by the Company in the Annual General Meeting.
• The board of directors can appoint any person as an additional director who shall hold office up to the date of the next Annual General Meeting.

The SAT further observed that a director can only be appointed by the shareholders of the Company in an Annual General Meeting.  However, the board of directors can appoint any person as an additional director who will hold office up to the date of the next Annual General Meeting. In this case the Board of Directors of the Company appointed Sivaram as additional director in the category of independent director subject to the approval of members in the 36^th general meeting by means of a special resolution.

Then SAT analysed Regulation 17 (1A) and Regulation 17(1C) of  LODR.  On analysis of the above regulations SAR observed the following-

• No listed company shall appoint a person as a non-executive director who has attained the age of 75 years unless a special resolution is passed by the members of the Company.
• The listed entity shall ensure that approval of shareholders for appointment of a person on the board of directors is taken at the next general meeting or within a period of 3 months from the date of appointment whichever is earlier.

In this case the Board appointed Sivaram as independent director on May 16, 2023 and the members approved the same in the next general meeting through a special resolution on 10.08.2023, i.e., within three months from the date of appointment.  SAT relied on a case of its own in NECTAR LIFE SCIENCES LTD. VERSUS SECURITIES AND EXCHANGE BOARD OF INDIA, NATIONAL STOCK EXCHANGE OF INDIA LTD. - 2023 (5) TMI 447 - SECURITIES APPELLATE TRIBUNAL, MUMBAI in which SAT held that the word “unless” as depicted in Regulation 17(1) does not mean “prior approval” nor the requirement of passing a special resolution was a qualificatory condition for appointment as a director.  Therefore, SAT held that the contentions of the stock exchanges were erroneous. 

SAT, therefore, held that it is clear that a person above the age of 75 years can be appointed by the board of directors. Such appointment is required to be approved subsequently within the prescribed period by a special resolution in the next general meeting by the members of the Company which in the instant case was done within the prescribed period.  Therefore, SAT held that no penalty cannot be imposed by the Stock Exchanges on the company for violation of Regulation 17(1) of  LODR. SAT allowed the appeals filed by the company.